PRA Publishes CP13/18 on Equity Release Mortgages Under Solvency II
PRA published the consultation paper (CP13/18) that sets out additional PRA expectations from firms investing in equity release mortgage (ERM) portfolios, as set out in Chapter 3 of the supervisory statement SS3/17. The PRA expectations from firms investing in illiquid, unrated assets within their Solvency II matching adjustment portfolios have been set out in SS3/17. PRA also published a letter from David Rule, its Executive Director of Insurance Supervision, which highlights certain key points related to the consultation. The consultation closes on September 30, 2018 and its proposed implementation date is December 31, 2018.
CP13/18 proposes to update SS3/17, with the aim to provide greater clarity to firms on the expectations for how they should ensure that the matching adjustment claimed on restructured ERMs is not overstated. The proposals aim to ensure that, where firms have invested in ERMs and have approval to use the matching adjustment or transitional measure on technical provisions, their technical provisions are not understated and that their Solvency II and ICAS balance sheets include appropriate allowance for the risks to which they are (directly or indirectly) exposed. CP13/18 is relevant to insurance and reinsurance companies holding ERMs. The proposals included in CP13/18 are as follows:
- Firms using the approach and minimum calibration proposed would meet the PRA expectations for assessing the allowance for no negative equity guarantee (NNEG) risk for the Effective Value Test (EVT).
- Firms holding ERMs should include an explicit allowance for other risks within the EVT.
- Where firms holding restructured ERMs in their matching adjustment portfolio cannot meet the EVT, this suggests that they may be taking an inappropriately large matching adjustment benefit. Thus, they will need to review their current approach and consider making changes to the structure, valuation, or rating of restructured ERMs to ensure that they are able to calculate their matching adjustment benefit consistently with Solvency II requirements
- Firms holding ERMs that benefit from the transitional measure on technical provisions should adopt the same approach to an assessment of NNEG and other risks for their ICAS technical provision calculations as they do for Solvency II technical provision calculations for the purpose of calculating transitional measure on technical provisions to ensure consistency between the calculation bases
- Firms should consider whether they need to revise their internal models in response to any of the above changes
Related Links
Comment Due Date: September 30, 2018
Effective Date: December 31, 2018
Keywords: Europe, UK, Insurance, Solvency II, Equity Release Mortgage, CP13/18, SS3/17, Matching Adjustment, PRA
Previous Article
APRA Proposes Updates to Related Parties Framework for BanksNext Article
FSB Issues Public Consultation on Cyber LexiconRelated Articles
|
News
FSB to Evaluate Effects of Too-Big-To-Fail Reforms for Systemic BanksFSB is seeking feedback as part of its evaluation of the effects of the too-big-to-fail reforms for banks.
May 23, 2019
WebPage
Regulatory News
|
|
News
APRA Releases Minor Changes to Reporting Standards on SA-CCR for BanksAPRA released minor changes to the three reporting standards for the standardized approach for measuring counterparty credit risk exposures (SA-CCR).
May 22, 2019
WebPage
Regulatory News
|
|
News
APRA on Industry Self-Assessments into Governance and AccountabilityAPRA released an information paper analyzing the self-assessments performed by 36 of the country’s largest banks, insurers, and superannuation licensees in response to the final report on the Prudential Inquiry into the Commonwealth Bank of Australia (CBA).
May 22, 2019
WebPage
Regulatory News
|
|
News
PRA Consults on Maintenance of TMTP Under Solvency IIPRA published a consultation paper (CP11/19) that sets out its approach to update supervisory statement (SS6/16) on maintenance of the transitional measure on technical provisions (TMTP) under Solvency II.
May 22, 2019
WebPage
Regulatory News
|
|
News
APRA Proposes to Amend Guidance on Residential Mortgage LendingAPRA is consulting on revisions to the prudential practice guide APG 223 on residential mortgage lending in Australia.
May 21, 2019
WebPage
Regulatory News
|
|
News
IASB Proposes Improvements to IFRS 9 and IFRS 16IASB published the exposure draft ED 2019/2 that proposes amendments to four IFRS standards, including IFRS 9 on Financial Instruments and IFRS 16 on Leases.
May 21, 2019
WebPage
Regulatory News
|
|
News
Denis Beau of BDF on Supervisory Priorities for Climate-Change RisksDenis Beau, the First Deputy Governor of BDF, delivered opening remarks at the BCBS-BSCEE-FSI High-level Meeting for Europe on banking supervision.
May 21, 2019
WebPage
Regulatory News
|
|
News
ISDA CDM to be Deployed for UK Digital Regulatory Reporting PilotISDA announced deployment of the ISDA Common Domain Model (ISDA CDM 2.0) to support the UK FCA, BoE, and participating financial institutions in testing phase two of the Digital Regulatory Reporting pilot for derivatives.
May 21, 2019
WebPage
Regulatory News
|
|
News
MAS to Consolidate Regulation of Merchant Banks Under Banking ActMAS published a consultation paper that proposes to consolidate the regulation of merchant banks under the Banking Act and to move merchant banks to a licensing regime under the MAS Act.
May 21, 2019
WebPage
Regulatory News
|
|
News
ESAs Amend Technical Standards on Mapping of ECAIs Under CRRESAs published a second amendment to the implementing technical standards on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs) for credit risk under the Capital Requirements Regulation (CRR).
May 20, 2019
WebPage
Regulatory News
|
